Sam Zell is one of the true giants in the commercial real estate industry. He is a genius and has crossed every product type and market across the United States. I have highlighted some of his comments below from his interview at the Urban Land Institute Fall meeting. Here are a few “gems” I found to be great. There are more below. After 30 years of grinding, it is nice to see the characteristic Zell looks for in new members of his leadership team: People who are smart, but not brilliant, and who are driven. They are the ones that make a difference. I would like to think that has been my career.
–“I pound on my people: Taking risk is great.”
–“The risk/return ratio is probably the most significant determinant of success as an investor.”
–It’s OK to pursue a transaction that keeps you up at night but nets a profit, and it’s OK to pursue a transaction that has less benefit but presents fewer concerns. “The only thing you don’t want to do is enter into a transaction where you can’t sleep and you can’t eat.”
–A man after my own heart–Zell reads constantly which allows him to chart direction and come up with ideas.
–“My focus has always been on understanding and defining the downside. If you understand and define the downside, then effectively you have assessed the risk.”
–On the characteristics he looks for in new members of his leadership team: “People who are smart but not brilliant and who are driven (“hungry”) are the ones that make the difference. Try to find the best possible people you can and give them rope, and they will either make a lasso or hang themselves. Constantly look for challenges and test their ability to respond.”
Thank you for reading.
Sam Zell on Risk, Margin, and Mentors
November 7, 2013
- Entrepreneurial streak dates back to childhood.
- Understanding the risk/reward ratio is of paramount importance.
- The Fed’s easy money policy risks inflation.
Defining risk—understanding and defining the downside of any investment—is the key to succeeding as a real estate entrepreneur, Sam Zell, founder of Equity Group Investments and chairman of Equity International, told attendees at the 2013 ULI Fall Meeting in Chicago.
“I pound on my people: taking risk is great. You’ve got to be paid to take the risk. The risk/return ratio is probably the most significant determinant of success as an investor,” Zell said.
The native Chicagoan was interviewed at a general session of the ULI meeting by Randall K. Rowe, a former Zell employee who is now chairman of Green Courte Partners, a private equity firm based in Chicago. Rowe invited Zell to explain how his personal history, as a child of immigrants who fled Poland in 1939, shaped his career.
“He believed that the streets were paved with gold and that America created the ultimate opportunity,” Zell said of his father, who was unable to convince his extended family to leave Poland, where they were lost to the Holocaust.
“I’m a big advocate of immigration,” Zell said, “not necessarily based on familial relationships. There are people all over the world who would excel in this environment,” and who should be encouraged to come here.
Zell recalled how, when he was not yet ten years old, he knew that he was “different,” and just could not go along in the same direction as everyone around him.
“I realized, if I could, quote, make money, then I got freedom because I didn’t need to ask anyone else for money,” Zell said.
His first foray into entrepreneurship started in 1953, when he was a 12-year-old living in the Chicago suburbs. He had to take the L train into the city to attend Hebrew school, and in his solo travels to school, he discovered that newsstands in the city carried a different class of publications—specifically Playboy magazine—than he could find in the suburbs. “Needless to say, I thought it was a terrific magazine,” Zell said. His suburban friends thought it pretty terrific, too, and were willing to pay him $3 for the magazines he picked up in the city for 50 cents. “That’s when I learned about margin,” Zell joked. “For the rest of that year, I became an importer—of Playboy magazines to the suburbs.”
Zell’s entrepreneurship continued through his college years at the University of Michigan and its law school, both in Ann Arbor, where he and a fraternity brother, Robert H. Lurie, invested in housing for students. Zell said he made $150,000 in 1966, his senior year of law school. “I could have stayed in Ann Arbor,” Zell said. But he felt he had to go to Chicago or another major market where he could test himself. Lurie joined him a couple of years later, when the two founded Equity Group Investments. “It was the most significant business relationship and personal relationship of my life,” Zell said of Lurie, who died in 1990.
Zell named Chicago entrepreneur Jay Pritzker as another significant mentor. “I think he was the smartest guy, business-wise, I’ve ever seen,” Zell said. “The way he looked at risk . . . he was one of the greatest investors of all time.” Zell said dealing with Pritzker for 20 years was of extraordinary benefit to him.
Today, however, Zell is highly critical of the inflationary risk he attributes to the Federal Reserve’s quantitative easing program. It even has led him to begin investing in gold—something Zell said he never found attractive because it generates no income.
“I don’t necessarily think real estate is the great beneficiary of inflation, unless you look at it on a very long-term basis,” Zell said.
ULI Special Report: Advice from Sam Zell
By: Suzann D. Silverman, Editorial Director
November 11, 2013
The legendary Sam Zell has spoken at many conferences over the years, but his keynote to a packed ballroom at the Urban Land Institute Fall Meeting on Thursday took a different tack. Interviewed by Green Courte Partners L.L.C. chairman, longtime investor and one-time Zell company executive Randall Rowe, the founder of Equity Group Investments and chairman of Equity International offered insights and advice learned from his parents and gained over a half-century career.
Randy Rowe interviewing Sam Zell at ULI
Among those insights:
Advice from his father:
- It’s OK to pursue a transaction that keeps you up at night but nets a profit, and it’s OK to pursue a transaction that has less benefit but presents fewer concerns. “The only thing you don’t want to do is enter into a transaction where you can’t sleep and you can’t eat.”
- There is no secret formula to the amount of reading you do. He reads constantly, which allows him to develop directions and ideas. “You’ve gotta be prepared.” Nobody can predict for you what the next opportunity is, but the more broadly you educate yourself, the better you’ll be able to recognize those opportunities when they come up.
On taking risk:
- “I never knew what I couldn’t do,” so it never stopped him from trying new things.
- “Taking risk is great, (but) you’ve got to be paid to take risk.”
- “The risk/reward ratio is the determinant of success.”
- Some people are not acclimated to take risk. They may be smart and have great judgment, but they don’t have the ability to accept the negative result.
- “My focus has always been on understanding and defining the downside. If you understand and define the downside, then effectively you have assessed the risk.”
On the characteristics he looks for in new members of his leadership team:
- People who are smart but not brilliant and who are driven (“hungry”) are the ones that make the difference. Try to find the best possible people you can and give them rope, and they will either make a lasso or hang themselves. Constantly look for challenges and test their ability to respond.
- “I love what I do. I’m challenged by what I do. I get to the office at 6:30. I’m 72 years old. I hope I can do this for the rest of my life.”
- “Anyone can put their name on a building. My focus has been on trying to make a difference.”